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It's a smart financial move. A house is an asset and almost always appreciates in value.
You can rent and pay and pay and pay and pay, at the end of the day, you get NOTHING.
With owenership, you pay and get an asset.
In the right area...otherwise you lose big time.
If you are in an area that's cheaper to rent than own. You can invest the monies you save in other ways to get more bang for your buck. The housing boom taught me that, real estate isn't always an asset at all.
Use the various online calculators to determine the true cost of ownership - mortgage principal and interest, property taxes, utilities, HOA fees if applicable, savings for major repairs and ongoing maintenance. Calculate in the offset of the mortgage interest deduction on your income taxes. See if you have enough in savings to put 20% down on a house plus have about six months worth of reserves.
And compare those costs to the costs of renting a comparable home. See how that stacks up. In addition to emotional issues surrounding home ownership and the long term planning aspects of building equity and not having rent or mortgage payments in retirement, you may be surprised to find that home ownership isn't that much pricier than renting - that is going to depend on the specifics of where you live. Where I am, rental units are in short supply and it's not at all unusual for owning a home (even including all the real costs of ownership) to be less than renting.
It's a smart financial move. A house is an asset and almost always appreciates in value.
Don't count on this. I bought my home almost ten years ago and it is worth nowhere near what I paid for it, and it is still below what I owe (although I think that, at least, will change within the next few years). I know lots of other people in the same boat.
That is not to say that buying a house is a bad idea, of course, just that one needs to remember that appreciation is not guaranteed.
Because I want to retire without debt. Without rent or mortgage. To plant my feet firmly into the ground and consider myself/my family part of a greater community. Because I want to build equity. Because I/we want to settle somewhere and not worry about lease renewal, rent increases, or damaging someone else's property accidentally and getting charged. That's what I can think of off the top of my head.
And Ma and Pa aren't part of the picture, so that's a non-issue. We are not boastful people so having friends be envious of us makes me a bit squeamish, to be honest.
This is location dependent. Sometimes you can build more equity renting and investing the difference than by buying. You have to run the numbers and don't forget the hidden costs such as repairs and possible increased commute.
You are assuming the renter did not (select a down market rental at a lower payment
and then) invest their extra cash from not owning (if they have any).
Just so you know... that is a VERY safe assumption.
Those who really get the principle are few.
Those who can/will follow through on it are about as rare as hens teeth.
These realities are why it CAN BE the wisest financial move to be made.
Certainly not guaranteed to be but if the basic stability issues are there
are very few households that won't be better off buying (even at today's over inflated prices).
A younger single person with that sort of stability is often better off to buy as well.
This is location dependent. Sometimes you can build more equity renting and investing the difference than by buying. You have to run the numbers and don't forget the hidden costs such as repairs and possible increased commute.
Sometimes you can build more wealth - not more equity. If you buy a home and continue to live there and pay your mortgage, eventually, it will be paid off, even if it doesn't increase in value. If you rent and invest, you will still need to pay for somewhere to live. The same way that you are taking a gamble that when you buy a home it will increase in value, you are taking a gamble when you rent and invest that your investments will keep up with inflation and increases in rental costs. And that is assuming that you can rent for less than you can currently buy and have money left over to invest, which isn't always the case.
I bought a house when my rent become comparable to a mortgage. It became a no-brainer when I realized that my rent will continue to rise but a mortgage would stay the same.
You are assuming the renter did not invest their extra cash flow from not owning (if they have any).
Quote:
Originally Posted by MrRational
Just so you know... that is a VERY safe assumption.
Those who really get the principle are few.
Those who can/will follow through on it are about as rare as hens teeth.
These realities are why it CAN BE the wisest financial move to be made.
Certainly not guaranteed to be but if the basic stability issues are there
are very few households that won't be better off buying (even at today's over inflated prices).
A younger single person with that sort of stability is often better off to buy as well.
Such an important point.
If you are disciplined enough to take your 20% down payment, your $10k-$20k in closing costs, your 6 month reserve, and the monthly delta between rent payments and mortgage payments and invest it in a stock index fund, you will likely come out ahead by renting.
This is probably true even when accounting for the inevitable increase in rent over the next 30 years.
The reason being that your financial assets are likely to appreciate at 5-8% per year, while the equity in your house will probably be closer to 3%.
But, are you that disciplined?
Will the stock market perform in the future as it has historically?
Do you want to trade money in the bank for the ability and satisfaction of doing what you want in your house?
Home ownership probably isn't the best choice in an ideal situation. But it is a really good choice in the most likely situation.
I have owned many homes in different parts of the country. I have always stayed with the old principal of the payment being close to 25% of my husband's take home salary. Never factored my salary. We have lost money on two of our homes and had to sell because of job transfers. Writing a check at closing is not for the faint of heart.
I recommend you listen to Dave Ramsey. He has all the guidelines you will ever need to make sound financial decisions. If you are nervous about buying, you are not ready.
Best of luck to you in your journey.
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